Debt Relief Options in Tennessee

Debt Relief Programs in Tennessee

Tennessee has a number of companies that specialize in helping consumers pay off credit card debt including banks, credit unions, online lenders, and both for profit and nonprofit debt relief companies.

The programs offered include debt management programs, debt consolidation loans, debt settlement, nonprofit debt settlement, and bankruptcy. Each program has pros and cons, so it is important to research each option thoroughly before making a decision.

Here is an outline of each program:

Debt Management Programs

Debt management programs allow consumers to pay off credit card debt without having to take out a loan. Consumers can pay off their debt in 3-5 years due to lenders reducing credit card debt interest rates to around 8%.

Where to find debt management programs: Debt management plans are offered by nonprofit credit counseling agencies. Credit counselors work with creditors to create a personalized budget and reduce interest rates on credit debt. This program is not available on secured debts like houses or cars but works on unsecured debts like credit cards.

Who is right for debt management programs: Debt management programs are ideal for those who have high interest credit cards and don’t pay them off at the end of the month. Consumers need to keep in mind that these plans also may require consumers to halt credit card usage, as well as make payments on time.

Debt Consolidation Loans

The goal of debt consolidation loans is to combine high-interest credit card debts to a single monthly payment at a reduced interest rate. You take out one loan from a bank, online lender, or credit union that is large enough to pay off your entire credit card debt. You then repay that loan, but at a considerably lower interest rate than what you pay on credit cards.

Your credit score is important to consider for these types of loans. Typically, your score needs to be above 700 to qualify, but you can also get fair rates with a score of 670-699. If your score is under 670, the interest rates will most likely be too high to consider.

Where to find debt consolidation loans: Most online lenders, credit unions, and banks offer this type of loan as long as you meet the credit score requirement. To find the best interest rates and loan terms, look at all of your options and compare lenders.

Who is right for a debt consolidation loan: For those who have a credit score over 670, as well as the ability to stop credit card usage, debt consolidation loans might be the best option.

Debt Settlement

Debt settlement allows the consumer to pay less than what was originally owed in 2-3 years, but with some very severe penalties tacked on. Companies can claim that they are able to cut debt in half and although it sounds enticing, it is rarely true and many of the claims can make your situation worse.

Most debt settlement companies will ask you to halt payments to your lender which leads to late fee penalties and interest added to your debt over 2-3 years, making it more difficult to pay off your debt.

Debt settlement also has a negative impact on credit scores that will last seven years, with credit scores dropping more than 100 points.

Where to find debt settlement: Consumers should consider hiring a for-profit company who specializes in debt settlement, even though it is possible to do it yourself. These companies are able to negotiate on your behalf with credit card companies to agree on a lump sum payment that settles the debt.

Who is right for debt settlement: It’s worth noting that credit card companies are not obligated to accept offers made by debt settlement companies. However, you should consider this option if you are at a point where you can no longer make payments on debt as this is considered the last option before bankruptcy.

Nonprofit Debt Settlement

With nonprofit debt settlement, there is no negotiating period. Instead, creditors agree up front to accept 50%-60% of what is owed to settle the debt.

Qualifying for this type of debt relief can be difficult. Consumers need to make on-time payments with no missed payments for 36 months. This program is also accredited by The National Foundation for Credit Counseling (NFCC).

Where to find nonprofit debt settlement: Currently, there are only a few nonprofit credit counseling agencies who offer nonprofit debt settlement. Consumers who wish to find these agencies should search online using the terms “nonprofit debt settlement.”

Who is right for nonprofit debt settlement: Consumers who are unable to pay off their large credit card bills may benefit from this option. This version of debt settlement is beneficial because consumers pay 0% interest on their debt during the 36-month repayment period.

Bankruptcy

Bankruptcy should always be the last option for those in debt as it comes with many negatives. Bankruptcy does, however, allow for consumers a do-over in their finances without losing many of their possessions.

The two major types of bankruptcy are Chapter 7 and Chapter 13. Chapter 7 bankruptcy requires passing a “means test” which measures your income and compares it to the median for your state. In Tennessee, the median income is $28,995 and your income must be under that to qualify for Chapter 7. Those who do not pass the means test are able to file for Chapter 13.

In Chapter 13 bankruptcy, you are able to keep your assets in exchange for making regular payments to the court trustee in order to pay down the debt. This repayment plan typically lasts 3-5 years. At the end of the plan, any unsecured debts are discharged.

Although a financial do-over sounds ideal, consumers must know that there are severe consequences to bankruptcy. Your credit score can drop from 100-200 points depending on your starting score, as well as staying on your credit report for 7-10 years, making it difficult to get a loan during this time.

Where to file for bankruptcy: Consumers are encouraged to consult with an attorney before filing at a federal bankruptcy court, due to the complex laws surrounding it. If you feel that all of your other options have been exhausted and you are unable to pay off your debt within five years, bankruptcy may be the best option.

Statute of Limitations for Tennessee

The “statute of limitations” for credit card debt is a law limiting the amount of time lenders and collection agencies have to sue consumers for not paying.

In the state of Tennessee, the statute of limitations is six years. Once the six years is up, the lender legally cannot sue to collect the debt. This does not mean that if you do not pay your debt in six years that you are free from creditors.

The statute of limitations only protects debtors from being sued by creditors, rather than erasing existing debt after the allotted time. The only way to erase debt is to pay it off. Debt collection agencies can still pursue the debt, they just can’t get a legal judgment to collect it.

Something to keep in mind is that it is possible to restart the clock on the statute of limitations. The statute begins that date of your last activity with the card. That could be the date you made your last payment or the date you last used it to charge something. If the usage restarts or even if a payment is made, the clock will restart.

Debt Collection Laws for Tennessee

Debt collection agencies like to use high pressure tactics like threats of garnishments in order to get consumers to cooperate. The U.S. has different laws to protect consumers from debt collectors and some states have their own set of laws to protect residents.

Residents of Tennessee fall under the Federal Debt Collections Protection Act, which prohibits collection agencies from harassing borrowers or using unfair or misleading tactics to collect debts.

Although Tennessee has not enacted a separate state law that goes beyond the Federal Debt Collections Protection Act, debt collectors must obtain a state license in order to reach out to consumers.

Debt Statistics for Tennessee

As most Americans, residents of Tennessee were hit hard by the pandemic, but are making a strong comeback. Here is the average debt citizens are carrying in 2022.

• Consumer Debt: In Tennessee, the average consumer is holding $83,716 in debt, not including mortgage. A 4.8% increase from the year before.
• Mortgage Debt: The average mortgage debt in Tennessee is 184,360, 28th highest in the United States.
• Student Loan Debt: The average student in Tennessee has a debt of $36,418, 18th highest in the US.
• Credit Card Debt: Tennessee ranks 30th in the nation in credit card debt, with an average of $5,006.
• Auto Loan Debt: Residents of the Volunteer State average $5,230 in auto loan debt, 23rd in the US.
• Average Credit Score: The average FICO score for residents of Tennessee is 701, compared to the nation’s average of 698.
• Bankruptcies and Foreclosures: Tennesseans are ranked fifth in the nation for filing the most bankruptcies and foreclosures with 11 filed for every 100 residents, double the national average.
• Identity Theft: In Tennessee, there were 20,254 cases of identity theft in the past year, 21st highest among the states.